We examine whether discretionary government grants influence where domestic and multinational firms locate new plants, and how the presence of agglomeration externalities interacts with these policy instruments. We find that a region's existing industrial structure has an effect on the location of new entrants. Grants do have a small effect in attracting plants to specific geographic areas, but importantly, we find that firms are less responsive to government subsidies in areas where there are fewer existing plants in their industry. This suggests that these subsidies are less effective in influencing firms' location decisions in the face of countervailing co-location benefits.

We investigate the geographic concentration and agglomeration of production activity in the UK at the four-digit industry level using a variety of measures. We relate these to comparable patterns in the US and France and find several similarities. We find that conditioning on industrial concentration, the most geographically concentrated industries appear to be relatively low-tech. We find evidence that plant survival rates are higher and both entry and exit rates are lower in more agglomerated industries, but that in some of the most agglomerated industries entry acts to re-enforce agglomeration.

This paper assesses the agglomeration pattern of four-digit industries in Germany using a rich data set on the population of German firms. To identify geographical agglomeration, the distance-based approach of Duranton and Overman of 2005 is followed. It is found that the location pattern of 71% of the manufacturing industries departs from randomness in the sense that plants exhibit significant geographical localization. In line with previous studies for the United Kingdom and France, the analysis suggests that especially traditional manufacturing industries exhibit strong localization patterns. Moreover, it is found that geographical localization is not restricted to the manufacturing sector, but that it plays an equally important role for service industries.